BUSM 3199/3115/4198
Ethics & Governance
Lecture 4: Creating an Ethical
Organisation
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Today
BEHAVIOUR
So what are we
are saying is:
B = f (P & E)
ENVIRONMENT
PERSON
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Outline
• The work context
• Organisational culture
• Ethical formal and informal cultural systems
• Ethics codes
• Ethical leadership
• The relationship between leadership, culture,
ethics codes and behaviour
3
Learning objectives for today
•Know the characteristics of an ethical
organization
•Discuss the difference between ethics of
value and ethics of compliance
•Understand the ethical formal and
informal cultural systems
•Discuss a code of ethics
•Discuss ethical leadership
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An Ethical Organisation
•Trust
•Effective communication
•Openness
•Objectivity and fairness
•Integrity
•Transparency
•Values
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The organisation as a context



individual personality is unimportant in
organisational criminal behaviour, as it results
from role fulfilling rather than individual pathology
(Schrager & Short 1978)
a reliable picture of moral conduct can be
ascertained “not so much in direct observation of
the decision maker as in a firmer grasp of the
decision maker’s environment” (Frederick 1992)
Bad apples and bad barrels: Most people are the
product of the context they find themselves.
They look up and around… (Trevino and Brown
2004)
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Organisational membership

Persons in organisations are socialised in their
roles (Katz and Kahn 1978).

Through this process, people accept the
organisational goal structure and the culture
(Clinard & Yeager 1980).

The expected role behaviour is learned from
others’ expectations and the rewards that they
receive from their organisational membership.
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Ethics of Values?
or
Ethics of Compliance?
•Values approach - is proactive and
inspirational; emphasises expected
behaviour, high standards
•Compliance approach - is reactive and
punitive; emphasises required behaviour,
obeying the law
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Organisational culture



Organisational culture affects people in
organisations
The organisational culture includes the basic
assumptions concerning what is right, proper
and fair (Gottlieb & Sanzgiri 1996).
Expresses shared assumptions, values and
beliefs and is the social glue that holds the
organization together. It’s “how we do things
around here.” (Trevino & Nelson 2006)
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Ethical formal cultural systems
 Leadership: creates, maintains and changes
culture. Most important aspect of an
organisation’s ethical culture
 Selection and reward systems
 Structure - authority, responsibility and ethical
culture
 Policies and codes- their effectiveness
depends on other formal and informal systems.
Ethics must be in the blood line of the
organisation.
 Orientation and training programs.
 Decision making processes assumptions and
scripts
(Trevino & Nelson 2006)
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Reward systems
Reward systems can encourage
unethical behavior
 People do what’s rewarded
 Rewards don’t have to be explicit
 Think about how attempts to motivate
can backfire
 Set goals for ethical conduct
(Trevino & Nelson 2006)
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Ethics Codes
•Have been around since the early 1900s
•An international movement towards
business ethics codes began in 1980s
•Post-Enron, stock exchanges such as
NYSE and ASX encouraged the
adoption of formal ethics guidelines for
company officers.
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Formulating a code of ethics
• A code of ethics is, in essence, a formalisation
of moral principles and responsibilities
• The need for a code of ethics
–Requirement by law, e.g. in U.S.
–Safeguarding reputation
–Improving customer service (and thus sales)
–Seeking like-minded partners and suppliers
–Attracting and retaining the best employees
–Responding to internal and/or external
pressure
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Approaches to Ethics
1. General principles
2. Corporate mission
3. Code of conduct
4. Specific policies
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1. General Principles
Examples: Singtel, GIC
• Ensure that our employees uphold the
code of ethics with integrity.
• But details of the principles unavailable
publicly
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2. Mission
•Example: Marketing Institute of
Singapore
“Uphold the good name of
Marketing Institute of
Singapore and Singapore,
Academic Standards and
Student Welfare”
http://www.mis.org.sg/about/ethics.aspx
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3 & 4. Code of Conduct, Specific Policies
Example: FJ Benjamin
1. Personal responsibility of each director and
employee to understand and comply with the
code of conduct
2. On entertainment, while it is an acceptable form
of business, directors or employees should turn
down meals or entertainment which are
excessive in nature or frequency, so as to avoid
loss of objectivity when conducting the
company’s business
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Ethics codes effectiveness
Code effectiveness depends on cultural values and
communication
•
Use collaboration to create/revise the code
•
Discuss/debate code frequently
•
Use code to resolve ethical issues
•
Communicate ethical decisions
•
Reward behaviour that is consistent with the
code
(Stevens 2008)
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Six Steps for Effective Implementation of
a Code of Ethics
1.
Distribute the code of ethics comprehensively to
employees
2.
Assist employees in interpreting and understanding the
application and intent of the code
3.
Specify management’s role in the implementation of the
code
4.
Inform employees of their responsibility to understand
the code and provide them with the overall objective of
the code
5.
Establish grievance procedures
6.
Provide a conclusion or closing statement, such as one
from Cadbury Company: “The character of the company
is collectively in our hands. Pride in what we do is
important, and let us earn that pride by the way we put
the beliefs set out here into action.”
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Ethical informal cultural systems
Informal cultural systems
Informal norms
Heroes and role models
Rituals
Myths and stories
Language
Developing and changing the ethical
culture
(Trevino & Nelson 2006)
Org. Culture and Leadership
Leaders affect culture through:
 attention
 critical incidents and crises
 role modeling / teaching / coaching
 criteria for scarce resources, rewards,
status, recruitment, selection, promotion,
retirement, excommunication
 others: formal statements, structure,
systems, processes, physical setting,
rituals, stories, etc.
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The responsibility of managers
Managers have responsibility for ethical
behaviour in organisations because they
affect culture, policies and practices
• Begin with clear standards
• Design a plan to continually communicate
your standards
• Managers are role models
(Trevino & Nelson 2006)
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Ethical leadership
Moral person + moral manager =
Having a
good character
Setting ethical
standards,
expectations etc.
(Trevino & Brown, 2004)
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moral person
Traits
• Integrity
• Trustworthiness
• Honesty
Behaviours
• Do the right thing
• Concern for people
• Being open
• Personal morality
Decision making
• Hold to values
• Objective/fair
• Concern for society
• Follow ethical
decision rules
moral manager
Role modelling
through
visible action
Rewards and
discipline
Communicating
about ethics
and values
Trevino, Hartman & Brown, 2000
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Executive Ethical Leadership
Reputation Matrix
Strong
Moral
Manager
Hypocritical leader
Ethical leader
Unethical leader
Ethically silent
leaders
Weak
Weak
Strong
Moral Person
(Trevino & Brown, 2004)
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Guidelines for effective ethics
management
•Understand existing ethics culture
•Communicate importance of ethical
standards
•Focus on reward systems
•Promote ethical leadership in the
organisation
(Trevino & Brown, 2004)
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Conclusions
•An ethical organization requires ethical
leadership – people look up and around
•An ethical leader is a strong moral person
and strong moral manager
•A code of ethics is a guideline. For it to
have meaning within an organisation it has
to be part of the culture.
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Case Study Codes of Ethics
Creative Technology & FJ Benjamin
Read the Creative & FJ Benjamin Code of Business
Conduct and Ethics and consider:
a) what are the ethical principles underlying these codes?
– is it a values based approach or a compliance based
approach?
2. Do you think these codes would be effective? Consider
Stevens (2008) - reading for Week Four.
3. Are there ways in which the codes implementation
should be supported?
4. What else would you do as a manager to make an
organisation ethical?
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Review Question
1. What is the role and content of an ethics code in an
organisation?
2. Explain when and why codes of ethics are ineffective
and discuss the arguments presented by Stevens (2008)
and Trevino and Brown (2004).
3. Outline the differences between a hypocritical and an
ethically silent leader (Trevino and Brown 2004). What
are the likely outcomes of having either of those leaders
in an organisation?
4. What can organisations do to improve the ethical
behaviour of their employees? Give examples.
5. Is unethical behaviour in business the result of ‘bad
apples’? Discuss in relation to organisational culture (‘a
bad barrel’).
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References
Clinard, MB, & Yeager, P. C. 1980, Corporate crime, The Free Press, New York.
Frederick, NL 1992, 'Ethics and Integrity - Beyond Internal Controls', Managerial
Auditing Journal, vol. 7, no. 1.
Gottlieb, JZ & Sanzgiri, J 1996, 'Towards an ethical decision making in
organizations', Journal of Business Ethics, vol. 15, pp. 1275-85.
Katz, D, & Kahn, R. L. 1978, The social psychology of organizations, 2 edn, Wiley,
New York.
Schrager, L & Short, J 1978, 'Toward a Sociology of Organizational Crime', Social
Problems, vol. 25, pp. 407-19.
Stevens, B 2008, 'Corporate ethical codes: Effective instruments for influencing
behavior', Journal of Business Ethics, vol. 78, pp. 601-9.
Treviño, LK & Brown, M 2004, 'Managing to be ethical: Debunking five business
ethics myths.' Academy of Management Executive, vol. 18, no. 2, pp. 69-81.
Trevino, LK, Hartman, L.P., & Brown, M 2000, 'Moral person and moral manager:
How executives develop a reputation for ethical leadership', California
Management Review, vol. 42, no. 4, pp. 128-42.
Trevino, LK, & Nelson, K. A. 2006, Managing business ethics: Straight talk about
how to do it right, 4 edn, John Wiley & Sons, New York.
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Online References
Jeff Skilling – ENRON
http://www.youtube.com/watch?v=XFTihsjO-og
Some background to Tyco: Former CEO Denis
Kozlowski
http://www.youtube.com/watch?v=MYmLaVYsyHw
Milgram Experiment
http://www.youtube.com/watch?v=BcvSNg0HZwk
Stanford Prison Experiment
http://www.youtube.com/watch?v=Z0jYx8nwjFQ
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Next Week
Corporate Social
Responsibility
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